European Commission consults on new EU-wide contract law

The European Commission is consulting over different possible proposals for a new EU-wide contract law. It has two concerns: one is to make consumers feel that they trust a business based in another EU country; the other is to reduce the administration for a business that wants to supply to a customer in another EU country. Ultimately, they are both about increasing cross-border trade and breaking down barriers between Member States of the EU. The Commission says that three in five cross-border sales are rejected by traders because they refuse to do business with someone in another country, largely because of regulatory barriers and legal uncertainty.

The Commission’s Green Paper proposes seven alternatives:

• Simply publish findings and recommendations as a possible way forward in the future without any particular change now.
• Have a toolbox for legislators, such that it would act as a referencing tool for any new legislation introduced by Member States. This would not really create harmonisation or certainty, however.
• The Commission to issue a Recommendation to encourage Member States to incorporate the laws into their own laws. This could allow a gradual implementation over time, although there would be no common consistent approach and implementation would be patchy and incoherent.
• Establishing a 28^th contract law regime. In effect, this would be a new optional contract law that could be used as an alternative to those within each Member State. The system could therefore run in parallel to existing contract law regimes.
• Minimum harmonisation of European contract law. Not everything would be harmonised, but some bits would be. Member States could still retain stronger rules, but this solution would require minimum standards as a base.
• Full harmonisation, in which the new EU law would replace the contract laws of all Member States.
• A full civil code. This would involve full harmonisation of all civil laws – not just contract law, but tort and property law too.

The consultation also considers a number of relevant issues including the scope of contract law issues affected (such as rights, remedies, incorporation, formation of contracts, validity), whether it should just apply to cross-border contracts or purely domestic contracts as well, and whether business-to-business contracts as well as business-to-consumer contracts should be affected.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Previous attempts to create a standard EU contract law have been resisted. However, the Commission would like to push this through again. They talk about a time of crisis for the European economy, and this new approach would present a historic opportunity to drive economic growth by easing the cost of cross-border transactions. They believe now is the time to make that quantum leap. It will be interesting to see whether or not each country wants to radically change the way they do business, though.’

The consultation closes on 31 January 2011. A link to the Green Paper can be found here: http://ec.europa.eu/justice_home/news/consulting_public/news_consulting_0052_en.htm.